New Delhi, As the country struggles amid the second wave of Covid-19 and economic activities again halt, an SBI report has commended measures taken by the Reserve Bank of India (RBI) amid the pandemic to support the economy and has suggested it now rests upon the Centre and state government to improve the vaccination processes and medical infrastructure and protect the economy, along with human lives.
“The RBI has played an amazing role through the pandemic, and we only hope that fortune favours the brave! But for that, vaccination and specific administrative reforms by Centre and states in the interregnum in enabling a better medical infrastructure to prevent any further wave hold the ace,” said the SBI Ecowrap report on Monday.
It said that the challenges posed by the pandemic are being exacerbated by the confounding market behaviour.
It noted that there could be always a possibility that growth outlook of the US, the UK and even the European Union remains strong as the regions have recovered from multiple waves of Covid through aggressive vaccination and India is currently only in the initial phase of vaccination and in the midst of a catastrophic second wave.
“In that case, if capital flows reverse, exchange rate could start depreciating and inflationary pressures will mount further, thus complicating the task of MPC to balance the trade-off between growth and inflation,” it said.
Additionally, the other issue is that with significant open positions in USD-INR carry trade, a vibrant non-deliverable forward market with big players and a high forward premia, if due to any event, the positions are unwound, it can put significant depreciating pressure on the rupee.